Broadway Financial Corporation (BYFC) — Q3 2023 Form 10-Q
Business context and reporting period
Unaudited consolidated results for the three and nine months ended September 30, 2023, compared with the same periods in 2022; balance-sheet comparisons are to December 31, 2022. Broadway Financial’s subsidiary, City First Bank, is a community-focused bank. The report was signed May 20, 2024, and says the 10-Q filing was delayed. Dollar amounts below are in millions unless stated otherwise.
Financial results and condition
- Earnings: Q3 net income attributable to Broadway Financial was $0.091 million ($0.01 per share), versus $1.318 million ($0.14 per share) a year earlier. Nine-month attributable income was $1.907 million ($0.21 per share), versus $4.130 million ($0.45). Consolidated net income was $0.086 million and $1.927 million, respectively, in 2023.
- Interest income and margin: Q3 total interest income rose to $11.9 million from $9.2 million, but interest expense climbed to $5.2 million from $0.6 million. Net interest income fell 21.3% to $6.8 million. Net interest margin was 2.33%, down from 3.02%. For nine months, net interest income declined 6.3% to $22.3 million and margin fell to 2.60% from 2.93%.
- Other income and costs: Q3 non-interest income was $0.331 million, versus $0.365 million; non-interest expense increased 15.0% to $7.0 million. Nine-month non-interest income was $0.880 million versus $0.907 million, while expense rose 7.4% to $19.7 million, mainly reflecting higher compensation and benefits.
- Loans and credit: Net loans held for investment grew to $835.4 million from $768.0 million, primarily on $112.2 million in originations, partly offset by $44.9 million in payoffs and repayments. The allowance for credit losses was $6.9 million, or 0.82% of gross loans, versus $4.4 million, or 0.57%, at year-end. The company recorded a nine-month provision of $0.808 million; the Q3 provision was effectively zero, including a $2,000 recapture. No charge-offs were reported. Loans 30–89 days past due totaled $1.210 million; there were no nonaccrual loans or loans over 90 days past due at quarter-end.
- Assets and securities: Total assets were $1.238 billion, up $53.5 million from year-end. Available-for-sale securities were $316.4 million, with $27.2 million of gross unrealized losses against $343.6 million amortized cost. Management attributed the unrealized losses to interest rates and market conditions, not credit; no securities ACL was recorded. Nine-month other comprehensive loss was $1.853 million.
- Deposits, debt and liquidity: Deposits declined $15.4 million to $671.5 million; uninsured deposits, including affiliates, were 37% of deposits, versus 31% at year-end. FHLB advances were $187.7 million, repurchase-agreement borrowings $75.8 million, and notes payable $14.0 million. Repurchase borrowings were daily-maturing and cost an average 3.06%; FHLB advances had a reported quarter-end weighted rate of 4.83%. Cash and cash equivalents were $11.5 million. The Bank reported $231.6 million of unpledged securities, $154.3 million of additional FHLB borrowing capacity and $10 million of unused credit lines. Management said liquidity was sufficient to support growth over the next 12 months.
- Cash flow and capital: Nine-month operating cash flow was $4.0 million, investing cash flow was negative $61.5 million and financing cash flow was positive $52.9 million; cash fell $4.6 million to $11.5 million. The Bank’s Community Bank Leverage Ratio was 15.13%, above the 9% well-capitalized threshold. Series C preferred stock of $150 million, issued to Treasury under ECIP in 2022, is included in capital.
Material changes versus comparable periods
- Higher deposit and borrowing costs compressed net interest margin and reduced earnings, even as interest income and the loan book grew.
- Funding shifted toward borrowings as deposits declined: FHLB advances rose $59.4 million and repurchase-agreement balances rose $12.3 million from year-end.
- The company adopted CECL on January 1, 2023, increasing the opening loan allowance by $1.8 million and reducing opening retained earnings by $1.3 million, net of tax. This change makes the allowance comparison with 2022 not directly like-for-like.
- Available-for-sale securities’ fair value declined $12.3 million from year-end, including a $2.6 million decline in fair value; accumulated other comprehensive loss reached $19.3 million.
Outlook, risks and unusual items
- No specific earnings or margin guidance was provided. Management cited higher funding costs and deposit competition; it also noted that some multifamily borrowers are retaining loans with favorable rate caps, rather than refinancing. Multifamily loans were $532.7 million, and $458.6 million were in an initial fixed-rate period.
- Credit risks include loan concentrations and deterioration in watch and special-mention ratings; management’s allowance estimate depends on forecasts and judgment and may be revised. Multifamily comprised about 63% of gross loans. The filing reports $6.4 million of collateral-dependent loans, with no associated allowance at quarter-end.
- Funding concentration is notable: five customers represented about 21% of deposits, and one customer represented 77% of repurchase-agreement borrowings. Management expected to maintain these relationships.
- Material control weakness: The company reported ineffective disclosure controls and internal control over financial reporting as of September 30, 2023, citing insufficient appropriately skilled personnel and weaknesses in risk assessment, reconciliation, close and monitoring processes. Stale or unidentified reconciliation items contributed to the late filing. Remediation—including hiring senior finance staff, third-party reconciliation review and enhanced signoffs—was underway but not yet demonstrated effective.
- Management identified $8,000 of prior-period adjustments that increased income; it considered them immaterial and recorded them in current-period other expense, with no amendment to earlier reports.
- After quarter-end, the company completed a 1-for-8 reverse stock split effective November 1, 2023. It also bought and retired 244,771 Class A shares from the FDIC for approximately $1.78 million, funded with cash. Share and per-share figures in the filing are retroactively adjusted for the split.
Key facts for investors to verify
- Progress and independent evidence that the material weakness has been remediated, and the status of any further reporting delays or corrections.
- Deposit retention, uninsured-deposit levels, funding costs, and continued access to concentrated repurchase and FHLB funding.
- Multifamily and construction loan performance, risk-rating migration, delinquencies and whether the allowance remains adequate under CECL.
- Net interest margin trends as funding costs and loan yields reset, including the effect of multifamily rate caps and loan prepayments.
- Liquidity and capital after the post-quarter share repurchase, and any restrictions or conditions associated with ECIP preferred stock.